A Scandalous Market Update

[Please note, this was originally published October 23rd, 2023, prior to the initial finding of liability in the Missouri Sitzer/Burner trial against NAR, et al.]

Greetings everybody, 
Been a minute since I’ve written one of these, and this one is a bit of a departure from most of my updates, if there’s such a thing as a “normal” update.

Primarily, there are currently two very big issues facing the National Association of REALTORs (NAR hereafter). They’re both important and impactful to consumers, but in very different ways. 

First, the NAR commission lawsuits, of which there are several. The chief defendants in these class action lawsuits are NAR, RE/Max, Keller Williams, several smaller companies and a handful of MLS associations (that all work differently, which adds to an already confusing situation). The quick version is that disgruntled sellers felt coerced to list their homes at a certain commission noted as a “standard” number, and that it wasn’t clear they were paying the cooperating agent’s commission, in some cases.

Before I get into my thoughts, if you want to hear NAR’s fluffy take on how commissions work, then please spend the next 3 minutes watching this:

https://youtu.be/VClEJi6nfrs

In order for the lawsuits to have teeth a few things need to be proven. First, that there is indeed a “standard” commission; secondly, that somehow all these entities conspired to establish or set the rate; and third that there isn’t enough transparency in the world of commissions. I’ve also sat through a bunch of lawyerly presentations where they talk about case law and other stuff that’s way over my head, but they all agree that these cases WILL be moving forward (some already have) and will be impactful in ways yet to be revealed (but I have some guesses). RE/Max settled for $55 million a few weeks ago in one case. 

Dear reader, you may be surprised to hear I think these cases are a good thing and will hopefully represent a needed shift in the industry. More importantly, it will (again, hopefully) weed out the bad actors from my profession.

The problem is that these cases involve lawsuits against the wrong parties. They’re simply going after the entities with the money. There are over 3 million licensed agents in the United States. About half of them are REALTORs, or members of NAR. I would say of those members, maybe a third are members ONLY because their office requires them to be. I know this because I used to be one such agent.

I’ll back up a minute and explain the difference since most people think anyone that shows them a house is a REALTOR. Hell, I’ve even seen/heard agents that are NOT members of NAR call themselves “realtors”, and most of them probably can’t even spell it (they usually throw in a U or an extra A somewhere) or know what it is, or what it means. Being a member of the Board typically means access to continuing education, networking, advocating for home ownership rights and a host of other things that are grounded in being subject to their Code of Ethics. There’s all kinds of unethical stuff a real estate agent can get away with that DORA (or whichever applicable governing entity) won’t find illegal or punishable. A REALTOR, on the other hand, can be punished by their board for a host of stuff deemed unethical but not necessarily illegal. As many of you know, I’m the founder of a group here we call The Indies and our HQ is the education room of the Fort Collins Board of REALTORs (FCBR). Much of our discussion concerns the value and benefits of FCBR, the Colorado Association of REALTORs and NAR, in addition to the many drawbacks of such membership. More on this whole thing in a minute… 

A major part of NAR’s duty is advocating housing rights at all levels of government, which means it’s in MY own interest to be a member of the board, right? Well, the issue is that your garden variety real estate agent (read: non-REALTOR) typically enjoys the benefits of the lobbying, PAC contributions and whatnot that The Board provides so they can, you know, actually have a job. But they aren’t doing anything to earn it if they aren’t a member of the Board, and also aren’t subject to the code of ethics. And in many cases, they’re the ones that don’t understand HOW THINGS WORK. In short: most of them are the ones that cause most of the problems and actually DO think there is a standard commission. I’ve heard it myself many, many times since I’ve been doing this almost 20 years now, and as much as I hate saying this, it’s usually agents that have been in the business a lot longer than me that believe there is a standard commission, and that paper contracts are better, and all kinds of nonsense. This type of thinking and subsequent practice isn’t sustainable in the information-everywhere-era, hence the lawsuits. And it’s also why I welcome them (to some degree) since it will shake up the status quo and get rid of some of the old guard. So, I applaud NAR for doing its part to educate and make changes (not quite enough, but it’s a start) and take one on the chin for more transparency. But again, the people that are largely responsible aren’t the ones that will be punished, in my opinion. Of course I have many more thoughts but will attempt to keep this somewhat brief.

On the other hand….

The other scandal that transpired simultaneous to all of this was a sexual harassment accusation and lawsuit that led to the resignation of the prior NAR president, which is akin to Nero fiddling with more than an instrument while Rome burns. What has got NAR scrambling the most is the subsequent cover-up from up high. In the wake of news reports, they issued the standard-issue PR apologies which, if you’ve watched Fall of the House of Usher, was like when Camille runs through her rapid-fire publicity ideas after her little brother turns on the sprinklers. 

These were accusations (and the lawsuit was settled for $107k), but it led to some RE/Max offices no longer requiring their agents to be members of a Board, and Redfin leaving NAR altogether. The latter news surprised me most of all because, frankly, I had a hard time believing anyone at Redfin was a member of NAR, or even took any real estate CE whatsoever, but I digress.

In other cases, such as our market, the shake up we need is in the area of rates. Last week’s par rates were just below 8% for a 30 year conventional, and 8.625% for non o/o properties. If yours truly were to buy an investment property I’d get 9.25% with 25% down. Year over year we’re still seeing price increases but it’s in line with a balanced market, like 3%. Coupled with the high rates (that didn’t drop as predicted by many lenders as detailed in my last update) this year’s seasonality feels more like a hibernation, and many of my clients are also feeling it and aren’t alone.

Those that could and should be buying - cash buyers - are also those that are historically the most cautious. So unfortunately, when we see rates start dropping to the low 6’s or (just think!) the 5’s, we are probably going to see more competition and more of a seller’s market once again. Yes it does feel like there’s a conspiracy against home buyers right now, and nobody is happy about it - not buyers, and certainly not sellers, especially after witnessing a couple years of double digit appreciation. 

Again, I have plenty of other thoughts on all of this but I’m gonna leave it at that and invite questions and further discussion from anyone. Cheers and I hope you’re well - Crip